Despite the declines in the property market, investing in bricks and mortar is still popular, particularly as bargains are there for the taking. A new report from Knight Frank recommends the top ten property investments to be made both at home and abroad in 2009.
1. Up and coming prime London locations
Liam Bailey said: ‘The weakness of sterling, combined with significant price falls, means London is very attractive to international buyers. Up-and-coming areas with additional growth potential include Fitzrovia, to the east of Marylebone. It may lack the historic and architectural integrity of areas further west but it makes up for this with a more varied selection of properties.
‘Neighbouring Bloomsbury is already famous for its leafy appearance and elegant architecture, as well as the British Museum. Bedford Square is often cited as the best preserved of all London’s Georgian squares. The vast regeneration programme planned for King’s Cross is likely to make this area far more attractive to prime buyers. Already, the opening of the high-speed Eurostar link at St Pancras has vastly improved the image of the area.’
2. US vacation and resort areas
Michael McPartland from Citi Private Bank said: ‘Over the next one to three years, there will be opportunities in vacation and resort areas for real estate and investment vehicles like REITs [real estate investment trusts]. As values rise, these areas generally trail primary home regions, but they are also usually the first area to give back value when prices decline.
‘The euphoria of the last few years led to a lot of over-building within the sector. The inventory exists, and much of it was created during a real estate bull cycle. This inventory will need to be reabsorbed, and the basic fundamentals remain that made these areas attractive to begin with. We are also beginning to see many experienced real estate funds acquiring properties. These funds are likely to begin to show profits over the next five years, assuming that the desire for inventory and capital constraints loosen.’
Georgina Richards from Knight Frank said: ‘The term ‘flight to quality’ is one being used above all others at present, and I do not think it is more applicable than in the Caribbean. We have seen increasing interest in up-and-coming islands, but over the last few months this has retracted to focus yet again on Barbados. Buyers appreciate its consistent track record, even in uncertain markets, thanks to a stable government, good infrastructure, a developed economy and accessibility.
‘Virgin Atlantic is expanding its routes from Manchester to Barbados, property transfer tax has been reduced to 2.5% and foreign exchange controls have been lifted. I would invest in either a beachfront property or well-maintained themed development offering an array of facilities and security. Three-bedroom townhouses in a waterfront development in St James are available for $1.7m.’
4. Moscow and regional Russian centres
Elena Norton from Knight Frank says: ‘Moscow is the place where everyone from Russia and the CIS would like a base. There is a lack of development opportunities in the inner city centre, and many developers have been affected by the crisis. I believe that in 12-18 months’ time the shortage of quality stock will be really felt. Among regional cities, Kaliningrad and Astrakhan will be interesting for residential property investment due to their strategic locations as major sea ports on the Baltic and Black seas.
‘I would definitely start looking for opportunities now, taking advantage of the global economic turmoil. The Moscow market will be the first to recover, with most growth towards the end of 2010. Here, $5m will buy an apartment that will hold its value and appreciate over the short and medium term. The level of regional investment will be about $1-2m.’
5. Prime marina developments
James Price from Knight Frank said: ‘Demand remains for high-quality property linked to desirable facilities, such as marina-based residential projects. Porto Montenegro, a regenerated port on the Bay of Kotor, offers attractive surroundings and 650 berths, including 130 for boats over 30m.’
6. Northern Tuscany, Lazio and Bordeaux
Paul Humpreys from Knight Frank comments: ‘An improvement in infrastructure means that northern Tuscany in Italy is increasingly accessible and the area to the north of Lucca, the Garfagnana Valley, is undoubtedly well worth considering as an alternative to the more traditional areas in the south. The area to the north of Lazio also has potential, as a new international airport at Viterbo is scheduled for completion next year.
‘In France, Bordeaux is undergoing something of a renaissance, and we are expecting to see increased Chinese interest in the area’s vineyards following Hong Kong’s abolition of import tax on wine. In all of these areas, an expenditure of between €500,000 and €2m will give buyers some excellent options to choose from. The growth period over which property should be purchased and held is at least five years.’
7. Distressed US and UK property plus emerging markets
Roger Orf from Citi Property Investors says: ‘The US and the UK have an abundance of distressed real estate – in many cases distressed not because of the locations or tenants, but due to their capital structures. I believe there will be opportunities to buy debt on these properties at a deep discount to par in future years. There may not be growth for a number of years to come, but the high volume of distressed property will outweigh available capital, which should result in some attractive returns.
‘Asian property continues to decline in value, but the underlying economies remain strong. Real estate historically has appreciated in tandem with a country’s GDP. China and India are likely to economically outperform most countries and this presents an opportunity to buy assets cheaply as well as participate in these countries’ strong ongoing underlying economic fundamentals.’
8. Luxury penthouse apartments
Patrick Dring from Knight Frank says: ‘Penthouse apartments in the best buildings in key city centres and resorts will retain their popularity. The wealthy are short of time and forever trying to simplify their lives, and fully managed lock-up-and-leave properties are ideal.
‘If I were an investor, I’d start looking now and select at least two locations in different parts of the world and different currencies. If I were a lifestyle purchaser then clearly the location will be driven by factors other than pure investment returns. Different locations are in different stages of the property cycle right now, but Paris has displayed considerable resilience in recent years and is still benefiting from the Eurostar link to London. Monaco has seen some of the froth come off prices and London now looks good value. Buying property in these markets, which perform consistently well, will always make sense.’
9. European REITS
Harry Stokes from Citi Investment Research comments: ‘The opacity of direct property values is reflected in the confusion and sharp write-downs of net asset value expectations in the quoted sector. For institutional investors, whose performance is benchmarked quarterly, property stocks are a risky selection at the moment. However, for private investors who take a longer-term view, some of the shares look interesting.
‘Real estate is a long-term investment, and the introduction of REITs was intended to allow private investors the opportunity to access income streams of the direct market via liquid, quoted companies. The dividend yield of the European real estate sector is currently at a 50% premium to the wider market and should remain one of the more resilient, given index-linked or upwards-only rental growth.’
Nicholas Barnes from Knight Frank says: ‘Although Brazil is a popular tourist destination, it remains in the emerging market category for second-home buyers. There are few developments of quality, though several are planned. Nonetheless, Brazil has considerable untapped potential and offers many attractive features.
‘The country boasts more ecological diversity than any other, its economy has performed well in recent years and it is expecting a considerable boost following the discovery of what is believed to be the world’s largest offshore oil field. The nation’s exotic, slightly frontier character is appealing to those seeking something different within the comfort of a fully serviced resort community. Average values are low – resorts along the northeast coast average $1,400 per square metre for villas and $1,900 per square metre for apartments.’